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The not-so-secret ingredient necessary for growth in medtech is innovation. Unless new prosthetics and instruments are differentiated from their predecessors, clinicians just won’t look at them because they are inherently resistant to change without an incentive. “The advantage of a new technology, a new product, a little better mousetrap or a lot better mousetrap, is you will drive higher pricing,” says Analyst and Managing Director William Plovanic of Canaccord Genuity. “Of course, if you’re just starting up, it will drive a significantly higher price. If you have an existing company that you’re building, it will help offset price degradation in your core, commoditized product lines.”

When I spoke with Plovanic for his interview with The Life Sciences Report, I was hoping to hear about small-cap growth stories where binary events can give investors either quick doubles or ugly haircuts, but Plovanic steered the conversation to the low-end mid-cap space with three initial names in the $1–$1.7 billion market cap range. I asked him to go ahead with his best idea. “Our top growth picks for 2013 are DexCom, Inc. (NASDAQ:DXCM) and Insulet Corporation (NASDAQ:PODD),” he said. So off the bat he goes with two diabetes companies. “Both of these companies have new product approvals from the FDA.” For DexCom, Inc. (NASDAQ:DXCM), it was the PMA (Premarket Approval) clearance of its DexCom, Inc. (NASDAQ:DXCM) G4 Platinum continuous glucose monitoring device with improved accuracy in the hypoglycemic range. For Insulet Corporation (NASDAQ:PODD), it was the FDA clearance for its 510(k) (Premarket Notification, or PMN) device, the OmniPod System, which is the first-ever tubeless insulin pump. “It’s smaller and lighter than the original with the same 200-unit insulin capacity,” he says. “The advantage to both DexCom, Inc. (NASDAQ:DXCM) and Insulet Corporation (NASDAQ:PODD) is significantly improved gross and operating margins.” Moreover, “Both of these companies are fast-growing medical device companies as is,” he says, “And now with newer products they will at least maintain, if not accelerate, those top line growth rates.”

Knowing that I want to talk about companies that grow like weeds, Plovanic just gets the issue out on the table. “There are not a lot of fast-growth companies out there,” he says. But, “It depends how you define growth. One of our top value picks could almost be defined as a growth play.” He’s referring to Globus Medical Inc (NYSE:GMED)., which has a $1.7 billion market cap, is an innovative player in spine, and is growing its top line in the range of 10%–15% per year. And, “Its bottom line should grow at least 10%–15% per year,” he says. “It has numerous new product cycles, but nothing specific that we can point to. It’s just more about the stock having a very inexpensive valuation.” Globus has a distinctive pipeline development program that has produced more than 100 new products over the last decade when the company was founded. The company is growing its distribution channels, and Plovanic sees margins as being sustainable for the foreseeable future.